The $200 million reason why health insurance premiums are going up and up

One of Australia's biggest health funds has accused comparator websites of being a "significant cost on the system", diverting $200 million a year from healthcare to their own bottom line.

Bupa's managing director Dwayne Crombie said, based on his calculations, comparator websites - which usually take a chunk of the first year's premium as commission - were costing health insurers $150 to $200 million a year and pushing up premiums.

"The customer might not have to pay more to use a comparison website, but the health insurers have to pay direct, and what happens when the health insurers do that, is it comes into their price, so the customers are then paying for it indirectly," he told Fairfax Media.

"It's not in the customers' best long-term interest, for them to have all this money going off to somebody else who isn't even providing healthcare."

At present, 10,000 Australians are ditching their policies every month, confused about coverage, unsure about value, and angry at the cumulative premium increase of 54.6 per cent since 2009.

The number of comparator websites has rapidly grown to help consumers navigate a complex system, but a quick scan shows they only compare between 10 and 46 per cent of all unrestricted health funds, and none include market leader Medibank.

Choosi, for example, only compares three - AHM, NIB, and Australian Unity.

Dr Crombie wants all comparator websites to disclose the exact commissions they charge and the number of funds they compare.

"They are conflicted to the extent they get a percentage of that first year's premium from whoever they advise the customer to go to, which is typically between 27 and 35 per cent," he said.

"Normally in financial services you have to declare what your commission is, but because there's no legislation about how they should practice, they don't have to do that."

Christopher Zinn, chief executive of Private Health Insurance Intermediaries Association, rejected suggestions that third parties were pushing up premiums and urged Dr Crombie to show evidence.

He said comparator websites were another channel, like Facebook, Google or a health fund's own marketing department, to recruit new members, and provided this service at a competitive cost.

"Comparators do add a great deal of value - they have call centres who can do a needs analysis and tell consumers what is available in the market," he said.

"As long as there are controls in place about avoiding conflicts of interest or conflicted remuneration, and consumer protections are in place, I think they offer a very good service."

Mr Zinn also questioned the Senate committee's recommendation, saying "consultants are purposely unaware of commission rates so they and the intermediaries can not be accused of favouring one product or insurer over another".

Levelling the playing field

Scott Wilson, chief executive of leading comparator iSelect, said it helped smaller, not-for-profit funds compete with major players such as Bupa, which have big marketing budgets.

He dismissed Bupa's claims about higher premiums, saying data from the Australian Prudential Regulation Authority (APRA) showed the average health fund management expense ratio, or running costs, has been declining.

"So the statement that we're adding incremental costs to the industry for members, we would have seen the management expense ratio blow out, and the APRA data doesn't show that," he said.

Mr Wilson also said it was more costly for health funds to gain customers through corporate discounts or acquiring a smaller fund.

"With Google and Facebook you have to buy lots of clicks and they don't necessarily convert every customer, but we only charge a fee when there's a successful conversion," he said.

"We are not adding costs to the industry; in fact I would argue that we're saving money because we're getting customers in an efficient way."

iSelect takes about 30 to 35 per cent of the first year's premium as commission - among the highest in the game. It discloses this on its website.

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"We provide our staff with a base salary to take away that pressure and we run a very strict and rigid compliance framework," he said.

"Our staff are not influenced; we are very proud of the fact that if we can't find a product that suits your needs or at a better price we will tell you to stay where you are."

Dr Crombie said he's heard stories of call centre staff being influenced to push certain products and hit their quota.

Bupa does have one arrangement with Compare the Market, which takes 25 per cent off the first year's premium.

Dr Crombie said they did this because its competitors were involved and they wanted to understand how customers behaved in a digital market.